Govt to close more banks later this month

Govt to close more banks later this month

JAKARTA (JP): Minister of Finance Bambang Subianto said on
Thursday that the government would close down more banks this
month in an effort to reform the country's ailing banking
industry.

However, he stressed that depositors had no reason to panic
because all deposits at the closed banks would be fully
guaranteed by the government.

"I openly announce here that in the near future there will be
further bank liquidations," he told members of the House of
Representatives Commission VIII for state budget and finance
during deliberations on the proposed state budget.

He said that the banking closures would begin after final
deliberations on the 1999/2000 state budget on Feb. 26.

He added that after the budget was approved the government
would begin to inject recapitalization funds into banks qualified
to join the recapitalization program, which is designed to bring
banks' capital adequacy ratio (CAR) to at least 4 percent by the
end of March.

"Only banks which have the potential to survive and thrive can
join the recapitalization program," he said.

Banks eligible to join the government's bank recapitalization
program are those which have a CAR level of between minus 25
percent and less than 4 percent.

CAR is the ratio between equity capital and risk-weighted
assets.

The government has divided the country's some 200 commercial
banks into three categories: category A, banks with CAR levels
equal to or above 4 percent; category B, banks with CAR levels
between minus 25 percent and less than 4 percent; and category C,
banks with CAR levels less than minus 25 percent.

The government announced in December that 54 private banks had
been classified as category A banks, meaning they met the basic
CAR requirement.

Bambang, however, told the House members on Thursday that more
conditions were required to join the recapitalization program.
These conditions include the banks' ability to boost their CAR
levels to an 8 percent minimum by 2001, a viable working plan to
meet a prudential ruling, a qualified and capable management team
and the ability to provide at least 20 percent of the
recapitalization funding in cash.

The government has promised to provide up to 80 percent of the
recapitalization funding by issuing bonds.

"Banks in category C and category B which can't meet the
requirements for recapitalization will be closed down and
liquidated," Bambang said.

He explained that the rigorous selection process was needed
because the recapitalization program was not merely meant to
raise the banks' CAR levels, but also to improve their
performances in order to support the sagging real sector.

The government's bank recapitalization program has received
strong criticism, particularly relating to the large amount of
money needed for the program and the lack of transparency in the
selection process, especially following recent press reports that
the government had discreetly picked privately run Lippo Bank and
Bank Sembada Artanugroho to join 10 regional development banks in
the first batch of banks to be recapitalized by the government.

A governmental decree dated Jan. 18 which was leaked to the
press last week stipulated that publicly listed Lippo Bank would
receive Rp 3.75 trillion out of the Rp 4.29 trillion earmarked
for the first round of recapitalizations.

This raised speculation that Lippo managed to secure the
lion's share of the recapitalization funding because of the cozy
relationship between the bank's owners, the Riady family, and
President B.J. Habibie.

The government has denied this allegation, saying that the
banks were approved for recapitalization because they were the
only banks which met the program's qualifications, including the
capability to provide 20 percent of the recapitalization funding
in cash.

The House also lambasted the governmental decree, saying it
was not only premature but had no legal basis because the
1999/2000 state budget, in which the government earmarked Rp 18
trillion to partly finance the interest of the bonds issued to
raise funds for the recapitalization program, had not yet won
approval.

However, Bambang stated that the government would only begin
the recapitalizations after the House approved the state budget.

He said the decree was merely meant to establish a ceiling for
the funding to be received by the banks, adding that the final
figures would have to await further calculations by the central
bank, especially in the case of publicly listed Lippo Bank, whose
shareholders might raise more than 20 percent of the needed
recapitalization funds.

"The issuance of the governmental decree doesn't mean that the
government has injected the funding," Bambang said. (rei)